As intervention risks continue to rise, there is considerable uncertainty regarding the USD/JPY outlook in the near term. What is the trigger point for the Ministry of Finance (MOF) to take action? At what level will they be comfortable trading USD/JPY after this? Without any real change in the fundamental drivers, what happens when the pair returns higher after a few weeks/months?
takachi trade The main risk remains for the Japanese Yen at this time and Tokyo officials certainly know this. The good news that they can count on right now is that the US Dollar is also at a weak peak and looks very weak. And there is also the fact that the bond market has become largely quiet since the Bank of Japan (BOJ) meeting.
So far, they have only been able to do a few ‘rate checks’ since last Friday. This is keeping the yen currency from collapsing, before which it had fallen to par with the dollar. But still, we are currently seeing a decline in USD/JPY from 159.00 levels to 153.00 levels. The pair is still 4% above its early October high, marking the beginning of its takachi trade.
So, what will happen to USD/JPY now?
BofA argues that a balance has to be struck and this could fit with a USD/JPY range of around 145 to 155 in the near term.
“According to the Tankan survey, large producers consider the average USD/JPY rate for FY2015 to be 146.50… A decline of USD/JPY below 145 appears undesirable in the near term. The 145-155 range could strike a good balance between stability in the equity market and bond market. However, a volatile selloff in USD/JPY below 150 could lead to a sharp selloff in equities. “Maybe, which raises the bar for intervention with USD/JPY below 155.”
Looking ahead, the firm notes that Tokyo officials would probably want the currency pair to remain lower than this. However, BofA says such a move would be difficult to sustain with intervention alone:
“In the medium term, the government may be comfortable with a lower USD/JPY rate, but not below the manufacturers’ “breakeven” USD/JPY rate, which was 127 in late 2024/early 2025. 135-145 may be a desirable range, although this would require more than unilateral FX intervention.”
As a reminder, Japan last intervened to prop up the yen currency in July 2024. This helped push USD/JPY from above 160 to below 140 in about two months. But soon after, the pair managed to rally once again, reaching close to 159 by January 2025.
It is a good anecdote that real interventions do not always mean lasting effects, especially if not accompanied by changes in fundamental factors.
